We study a price competition game in which customers are heterogeneous in the rebates they get from either of two firms. We characterize the transition between competitive pricing (without rebates), mixed strategy equilibrium (for intermediate rebates), and monopoly pricing (for larger rebates).

We modify the principal-agent model with moral hazard by assuming that the agent is expectation-based loss averse according to K o szegi and Rabin (2006, 2007). The optimal contract is a binary payment scheme even for a rich performance measure, where standard preferences predict a fully...

We examine the persistence of monopolies in markets with innovations when the outcome of research is uncertain. We show that for low success probabilities of research, the incumbent can seldom preempt the potential entrant. Then the efficiency effect outweighs the replacement effect. It is vice...

We study a dynamic model of team production with moral hazard. We show that the players begin to invest effort only shortly before the time limit when the reward for solving the task is shared equally. We explore how the team can design contracts to mitigate this form of procrastination and show...

We modify the principal-agent model with moral hazard by assuming that the agent is expectation-based loss averse according to Köszegi and Rabin (2006, 2007). The optimal contract is a binary payment scheme even for a rich performance measure, where standard preferences predict a fully...

We show that a steeply increasing workload before a deadline is compatible with time-consistent preferences. The key departure from the literature is that we consider a stochastic environment where success of effort is not guaranteed.

We consider a principal-agent model with moral hazard where the agent’s knowledge about the performance measure is ambiguous and he is averse towards ambiguity. We show that the principal may optimally provide no incentives or contract only on a subset of all informative performance measures....

In an agency model with moral hazard and limited liability, we show that the provision of perks can be inefficient, even if perks are contractible. Interestingly, there can be over- as well as underinvestment in perks. We also demonstrate that perks may actually harm the agent, although perks...

We show that a steeply increasing workload before a deadline is compatible with time-consistent preferences. The key departure from the literature is that we consider a stochastic environment where success of effort is not guaranteed.

We model child development as a multi-stage investment problem, where the child's specific ability is unknown at the early stage of childhood and learnt at the late stage. We show that this form of incomplete information weakens the importance of early investments in children if inter-stage...